An Analysis of the ‘Fredriksen Formula’ to Enacting Entrepreneurship (v2)

Hvalbye Capital Markets

2014

An Analysis of the Fredriksen Formula to

Enacting Entrepreneurship

by

Are Rodahl Hvalbye


2014

Table of contents:

Table of contents: ..................................................................................... 2

Introduction: ............................................................................................ 3

Background: ............................................................................................. 3

Biography: ................................................................................................. 4

Financial wealth:........................................................................................ 4

Company portfolio: .................................................................................... 5

Theory: ..................................................................................................... 9

Classfying an entrepreneur: ....................................................................... 9

Entrepreneurial role: ................................................................................ 11

Personal(ity) characterization: ................................................................ 12

The Fredriksen Formula: ....................................................................... 14

Strategy and takeover targets: ................................................................ 14

Mergers and acquisitions: ........................................................................ 15

Corporate governance: ............................................................................. 15

Lean organizations: ................................................................................. 16

Responsible ownership: ........................................................................... 17

Bailout capability: .................................................................................... 17

Mutual exposure/value maximizing: ........................................................ 18

Dividend focus: ........................................................................................ 18

Financial leverage: ................................................................................... 19

Financial engineering: .............................................................................. 20

Risk willingness: ...................................................................................... 20

A Fredriksen premium? ........................................................................... 21

Conclusion: ............................................................................................. 22

Appendices: ............................................................................................ 23

References: ............................................................................................. 24


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Introduction:

This project paper revolves around a case study of John Fredriksen, his group of companies,

business practices, entrepreneurship methodology and financial management style.

The objective is to define what type of entrepreneur Fredriksen is, and get an understanding of

his financial success through examining his entrepreneurial methodology. I find it necessary to

emphasize that the intention is not to analyze how successful he is, but rather how he is

successful. However, in order to identify the latter one needs an understanding of the first.

Hence the reason I devote a portion of the paper to cover this aspect.

Theoretically, Fredriksens wealth could be ascribed to pure luck; however, my hypothesis

contends that it is attributed to a specific methodology of practicing entrepreneurship.

The theory aspect receives attention starting page 5, but is also partly intertwined

with the empirical research throughout. Theory is based on curriculum, Bissant and Tidd, the

works of Wickham as well as any other authors cited in the reference list and in parenthesis.

I have chosen this topic because I find the ventures and success of Mr. Fredriksen to be

fascinating, and I believe his entrepreneurial style is somewhat unrecognized. I also argue that

Fredriksen has received undeservingly little attention in relevant academic research, as opposed

to popular media spotlight. This analysis is largely based on an earlier paper written by myself

and is cited in accordance with instructions given to me by examinators.

The topic will be researched in light of Fredriksens historical and current business ventures and

dispositions, and is based on available information from literature, news archives and company

publications.

Background:

John Fredriksen is a widely acclaimed businessman and skilled shipping tycoon, known for his

eccentric persona, pragmatic attitude and vast affluence. Fredriksen comes from a humble

uprising at the east side of Oslo and is an entirely self-made billionaire that rose to fame

through an almost clich-like rags to riches storyline (as depicted in appendix A).

Fredriksen is the architect of several world-leading contemporary corporations, in which he

holds large ownership stakes that make up the majority of his entrepreneurial-based wealth.

Adopting an insensate great person view of Fredriksen on the back of his success is not

particularly useful, as it may self-justify ones perception. Therefore, I have assumed a critical

view of Fredriksens undertakings and refrained from any type of aggrandizement.

Reading an unauthorized biography - written by editor, social commentator and proclaimed

anti-capitalist Gunnar Stavrum - where Fredriksens actions is scrutinized and receive criticism,

has been influential in the analysis. I still ascertain that Stavrums publication needs to be

considered in light of a certain bias. One observation of mine is that John Fredriksen has been

the subject of a high degree of Law of Jante thinking through pervasive press coverage,


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forging a somewhat unflattering public image of his persona and thereby undermining his

entrepreneurial abilities.

Biography:

For a summarized biography emphasizing the relevant events and highlights of John

Fredriksens life, based on the works of Stavrum and information from the Great Norwegian

Encyclopedia, see appendix A.

Financial wealth:

Fredriksens wealth, with its remarkable size and growth, is partially the trigger for researching

the topic as it stimulates the curiousity of how it was attained.

Fredriksens personal fortune has received attention and scrutiny from several parties (such as

media and tax authorities), and is convenient to estimate due to a large portion of ownership in

publically listed companies.

Forbes estimated Fredriksens net wealth at $11.5 billion for their 2012 global billionaire ranking

(Forbes, 2013), Norwegian business journal Kapital place him atop their annual ranking of

Norways richest people suggesting 15bn. (Hegnar Online, 2013), whereas Fredriksen currently

ranks 55th place with $15.6bn. in Bloombergs real-time Billionaire Index (Bloomberg, 2013). My

personal estimations arrive at similar levels (appendix B), suggesting a total net worth of

$15.9bn when including real estate and cash deposits.

Although no longer officially a Norwegian national after applying for Cypriot citizenship,

Fredriksen is undisputedly Norways richest person. He has almost threefold the wealth of the

second person on the list - Olav Thon, an old, eccentric, self-made property tycoon.

Shipping has been Fredriksens main wealth catalyst and field of interest, and continues to be

his preferred time occupation (Trim, 2011). Shipping companies are historically where

Fredriksen has had most of his capital, however as of lately, Seadrills strong stock price

performance has caused offshore drilling rigs to surpass shipping. As illustrated in the pie chart

below (a snapshot from 18.04.13), showcasing the different sectorial focuses, Fredriksens

involvement in the rig sector (through Seadrill, Northern Offshore and North Atlantic Drilling)

now constitutes almost half of his equity wealth (~ $4.7bn.).


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The crude oil tanker segment is where Fredriksen gained most of his wealth as well as public

exposure - earning him the nickname Tanker King (Stavrum, 2006). Earnings from these

vessels has since found its way into investments in other maritime sectors, such as dry bulk,

offshore supply, LPG carriers, chemical tankers, LNG tankers and containerships.

My personal mapping of Fredriksens wide-slung network of ship controlling entities, estimates

that Fredriksen owns and/or controls a fleet of 232 vessels with a combined tonnage of 31.4

million deadweight tons (see appendix C). Of these, 139 are believed to be sailing and actively

trading, while the remainder are newbuilding projects under (planned) construction (appendix

C).

To put these numbers in perspective, Fredriksens total fleet is almost twice the size (in terms

of tonnage) to that of all Norway-flagged vessels - effectively making him the equivalent to the

12th largest shipowning nation in the world (UNCTAD, 2011). Correspondingly, it is equivalent to

almost 2.2% of the world commercial fleet. Albeit, these estimations imply that one considers

the various shipowning entities that Fredriksen partly and/or indirectly own as one

establishment. Certainly, this fleet has substantial debts attached to it, but still gives a clear

indication of Fredriksens sizeable real assets.

Conclusively, Fredriksen is an extraordinarily affluent person that - perhaps more exceptionally

- has built his companies from scratch using a trademark entrepreneurial approach that is the

topic of this paper.

Company portfolio:

The sphere of Fredriksen companies, collectively referred to as the Fredriksen Group,

Seatankers Group or the Greenwich Group, is comprised of 18 staple companies that are

exchange listed with a collective market valuation of about 50 billion dollars (appendix B). To

put this in perspective, it is equivalent to about a quarter of the national budget of Norway.

The core companies, where Fredriksen retains between 18% and 58% ownership, include

Seadrill, Marine Harvest (delisted), Frontline, Golar LNG, Deep Sea Supply, Golden Ocean

Group, Archer (formerly Seawell), Ship Finance International, North Atlantic Drilling (NADL),


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Northern Offshore, Frontline 2012, Golar LNG Partners and Independent Tankers Corporation

(most of whose logos can be seen below).

A selection of these companies - specifically Seadrill, Marine Harvest, Golar LNG, Ship Finance

and Frontline (2012) - are considered world-leading entities within their respective sectors,

when considering market share, operational performance and profitability.

Other known (non-core) holdings include equity stakes in TUI AG and TUI Travel two affiliated

companies that make up one of the worlds largest tourism operators as well as Fred Olsen

Production, Calpine Corporation and Knightsbridge Tankers (see appendix B). The common

factor among these investments is that they were made on the premise of distressed or

understated valuation.

In a report by composed by Menon Business Economics, it was calculated that the groups

Norwegian based companies comprise 8.5% of Oslo Stock Exchanges value and 2.6% of total

Norwegian trade and business. Additionally, it stated that the groups total borrowings

constitute almost 10% of the cumulative loan portfolio to business customers in Norway (Bgh

Holmen et al., 2012).

Below I will take a closer look at the four most prominent companies considered to be/have

been the core of the group. This historical review is vital in order to comprehend Fredriksens

way of enacting entrepreneurship through a methodology that will be explicated further along.

Marine Harvest:

Fredriksen entered the salmon industry in 2005, through his holding company Geveran

Tradings purchase of Nordeas creditor-in-possession stake in Pan Fish. Pan Fish traces its roots

back to 1992, but was turned over to its creditors due to financial distress caused by low

salmon prices (Bgh Holmen et al., 2012).

Marine Harvest ASA was formed as a result of a merger between Pan Fish ASA, Fjord Seafood

ASA and Marine Harvest NV in 2006. The new enterprise kept the name of Marine Harvest, logo

of Pan Fish and the slogan of Fjord Seafood. The triple merger was an upshot of a widespread

consolidation within the fish-farming and seafood industry instigated by Fredriksen (Bgh


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Holmen et al., 2012). Most recently, Marine Harvest acquired its Oslo-listed peer, the

processor/packager Morpol ASA.

Today the company is the worlds largest processor of salmon wherein it operates in 22 different

countries and employs over 10,200 people (including Morpol). Revenue has historically lied

between 13.5 and 16 billion NOK the last five years, but profitability and (thus) market value

have been subject to volatile salmon prices. Accordingly, the reasoning for the purchase of

Morpol has been to create a more horizontally integrated company that is less exposed to the

spot price of salmon (Marine Harvest, 2013).

Seadrill:

Seadrill is the worlds second largest owner and operator of offshore drilling rigs, with in excess

of 60 rigs and 7,000 employees (Seadrill, 2013). The company was originally headquartered in

Stavanger, but recently moved to London.

Seadrill has since its establishment in 2005, been the case of unprecedented growth organically

and through a series of acquisitions (Marine Money, 2010). The foundation of the company was

Fredriksens controversial takeover of Smedvig ASA in a bidding war Noble Drilling in 2006.

Fredriksen surprisingly managed to snap up the company in front of Nobles eyes despite the

fact that Noble already had purchased over 40% of the companys stock (Starr and Olsen,

2006). The same year Mosvold Drilling and Odfjell Drilling was absorbed, followed by Eastern

Drilling and then Scorpion Offshore in 2007 and 2010 respectively. The latest acquisition

sparked a bidding war with British rig operator Ensco, where Fredriksen once again was

victorious.

In 2007, the drilling and well service operations of the company was divested in a separate

entity dubbed Seawell, which proceeded to go on a buying-spree acquiring another six related

companies and finally merging with Allis Chalmers Energy, incorporated the name Archer (Bgh

Holmen et al., 2012). Another divestiture took place in 2011, when North Atlantic Drilling was

created as a pure-play ultra-deepwater entity by acquiring Seadrills modern rigs operating in

the North Atlantic region.

Seadrill is currently the fourth largest company in market capitalization among the hundred-

something companies listed on the Oslo Stock Exchange, exceeding that of Norwegian staple

blue-chip companies such as Yara and Hydro - outfits with roots going hundred years back.

Frontline:

Frontline has largely been Fredriksens pet project and main wealth facilitator before Seadrill,

therefore being the company that most people associate with John (Stavrum, 2006).

Frontline AB was founded in 1985 and was listed on the Stockholm Stock Exchange from 1989

to 1997. Hemen Holding became the largest shareholder of the company in 1996 through a $55

million bulk stock purchase. A year later Fredriksen trumped through a decision to change the

companys domicile from Sweden to Bermuda, list the shares on the Oslo Stock Exchange and

sell off a part of the fleet (SNL, 2013). Since this restructuring, Frontline has been actively

involved in a consolidation of the tanker industry and has carried out a series of corporate


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acquisitions. These include London & Overseas Freighters (1997), Cambridge Partners (1998),

Swedish company ICB Shipping (1999) and Golden Ocean Group in 2000 (Bgh Holmen et al.,

2013).

The takeover of ICB turned into a two-year hostile takeover battle, whereupon Fredriksen

utilized tactics such as ads in the Swedish press and intimidating letters to the board of

directors. The commotion that arose from the takeover cemented Fredriksens image as a no-

nonsense hardball negotiator. The CEO and largest shareholder of ICB at the time, a Swedish

aristocrat, benchmarked the sentiment when saying, "he's a tough cookie, but he knows the

shipping business" (Gorham, 2001).

The entry into Canada-based Golden Ocean, which went bankrupt after the 1997 Asian

downturn, was an interesting endeavor. Fredriksen had amassed the companys heavily

distressed debt, becoming the largest creditor and effectively taking control of 17 collateralized

tankers for a mere $65 million outlay. Golden Oceans fleet of non-oil tankers was divested and

placed into a new entity, appropriately named Golden Ocean, which was listed on the Oslo

Stock Exchange and its shares distributed to Frontline shareholders (SNL, 2013).

After the acquisitions, Frontline had 43 tankers with a combined tonnage of eight million

deadweight tons (dwt) and was officially the worlds largest. At the peak, Frontline operated a

partially owned and chartered fleet of 70 oil tankers with a combined weight of about 15 million

deadweight tons (Nightingdale, 2010). This is equivalent to a combined carrying capacity of

about 135 million barrels of crude oil, or about a week worth of United Statess oil demand (EIA,

2013).

In recent terms, the supertanker market has experienced yet another major slump caused by

the excess supply of ships. The company has been amassing losses finally leading to a breach in

the covenants of the bonds, likely heading towards defaulting and bankruptcy. However,

Fredriksen stepped up and bailed out the company by injecting capital and creating a new

company that absorbed most of the liabilities (see below).

Frontline 2012:

This new company was created as a measure to bail out Frontline through a 300 million dollar

equity injection, whereby two thirds of the proceeds was used to purchase the original

Frontlines newbuilding contracts along with seven sailing ships and the associated bank debt.

Frontline 2012 is listed on the Norwegian OTC list and is considered Fredriksens main

investment vehicle for growth in the shipping sector. Thus far, the company is rumored/partly

confirmed to own shipbuilding contracts for 80 something vessels, divided between bulk

carriers, chemical tankers, LPG tankers and crude carriers (Ang, 2013). My research, based on

scarcely available information, suggest that Fredriksen thus far has ordered ships with a

collective value of between 6-7 billion dollars (Haavaldesen, 2013). The orders are said to have

occupied the best slots at the most prominent shipyards at prices that are ~ 40% lower than 4-

5 years ago and at 30-year lows when adjusted for inflation (Stenshagen, 2012).

Almost two years ago, Fredriksen was quoted saying that the oil tanker market will "()

collapse in a year or two and that "we'll wait until the market collapses and then we'll buy up


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what's there" (Wright, 2011). Sometime later last year he exclaimed "when the market goes to

hell, it's more of an opportunity than a problem () (Koranyi, 2011). These citations illustrate

the ambitious undertaking of the new firm, which according to some analysts is believed to

order up to 150 new ships by the end of this year.

Theory:

John Fredriksen has to my knowledge not received any attention in published academic

literature, there are however numerous theoretical aspects that are relevant to discussing him

and his methodology.

The intention of explaining the source of Fredriksens wealth and success can be debated in light

of different theories and academic perspectives. I intend to look at the classification schemes,

the different role(s) and characterizing the personality of entrepreneurs (I do not intend to

discourse much about psychology). Some of the discussion also pertains to business strategy,

managing resources and finances, and success factors of entrepreneurship.

Wickham (2006, pg. 225) point out that the success of an entrepreneurial venture is contingent

on four factors: (1) the entrepreneur, (2) the opportunity, (3) the organization, (4) the

resources, and maybe more importantly, the symbiosis between these aspects. The interaction

between these factors is defined as the actiual entrepreneurial process, upon where all factors

need to be present (Wickham, 2006). Consequently, it is the level of proficiency that the

entrepreneur is able to display towards synchronizing the organization for opportunities and

resources, which determines the success of the venture.

Additionally, Wickham (2006, pg. 264) discusses entrepreneurial success in light of resource

use. He raises the point that (first-time) entrepreneurs and their success appear somewhat

paradoxical. This is because, he claims, they lack the same level of resources as established

competitors, in that they are short internal success factors, and secondly, that resources are

more expensive due to higher risk premiums. Wickham claim that the reason entrepreneurs

succeed despite these intrinsic disadvantages, is that entrepreneurs work their resources harder

than more established businesses.

Classfying an entrepreneur:

Classifying the entrepreneur is important, as it provides insights to researchers, investors,

customers and policymakers that are crucial to their respective decision-making. Although

comprehensive classification schemes exist, one should be somewhat wary of pigeonholing

entrepreneurs due to their ever-changing state and dynamic context.

Wickham (2006, pg. 34), contends that there are two main approaches - either to classify the

entrepreneurs themselves or their individual ventures. One major distinction lies in being a

growth-oriented and independence-oriented entrepreneur, whereas the later is typically

small-scale craftsmen with a craving to become autonomous.

Landau (1982) has developed a classification system based on risk bearing (vertical column)

and level of innovation (horizontal column), where both factors are dependent on eachother

(see table below).


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An individual with high risk-taking and low innovativeness is considered a gambler. The

premise of the gambler is to be able to deliver value better than exsisting players in the

marketplace, whereas a consolidator takes on less risk and provides a marginal improvement.

This designation system is particularly interesting in light of Fredriksen, as he would probably be

defined as a hybrid gambler/consolidator, yet likely rank closer to the former.

Some of the academic discussion revolving around the classification of entrepreneurs pertains

to whether one has an adaptor or an innovator mindset. Michael Kirton made this distinction in

his 2003 Adaption-Innovation theory, which is a psychometric approach to assessing creativity,

that claims that an individual's preferred approach to problem solving can be placed on a band

ranging from high adaptation to high innovation. Adaptors use what resources they are given to

solve problems by time-honoured techniques, while innovators look beyond what is available to

solve problems with the aid of innovative technologies. Kirton suggests that while adaptors

prefer to do well within a given paradigm, innovators would rather do differently by going

beyond existing paradigms (Kirton, 2003).

Fredriksen is primarily an adaptor (there is little innovative about owning ships), typically

improving existing solutions and systems in order to be an early-mover and exploit new

products/technologies and market opportunities. An example is Seadrills procurement of top-

spec, high-end ultra-deepwater semi-submersible drilling rigs from Samsung Heavy Industries

before most others, that benefitted handsomely in the aftermath of the Gulf of Mexico Macondo

well blowout, due to stricter regulations and increased demand for more modern/safer rigs.

Narrowing down on the attempt to classify Fredriksen, Wickham (2006, pg. 38) names a special

breed of entrepreneurs, called serial entrepreneurs or habitual entrepreneurs, which are

motivated by the rewards of establishing and building businesses more than anything. The

serial entrepreneur is able to effectively exploit his/her technique and replicate successful

business ventures and projects on the same premises. Some observers, such as Gartner

(1985), actually suggest that when the building stage of the venture ends, so does true

entrepreneurship.

As per Wickhams methodology, serial entrepreneurs are sub-categorized into sequential

entrepreneurs and portfolio entrepreneurs (2006, pg. 39). The first category pertains to

people whom start new business ventures in sequence, preferring to focus on one at a time,


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while entrepreneurs who establish and operate several businesses simultaneously characterize

the latter.

Wright M., Robbie K. and Ennew C. (1997) have expanded on the definition of serial

entrepreneurs, with three detailed distinctions: (1) defensive serial entrepreneurs, (2)

opportunist serial entrepreneurs and (3) group-creating serial entrepreneurs. The category of

group-creating entrepreneurs is somewhat self-explanatory, and evolves around the idea that

creating an array of businesses or different entities is essential to the strategy of the

entrepreneur. E.g. owning a distribution network of fuel trucks is complimentary to operating a

chain of gas stations. An opportunistic entrepreneur undertakes new ventures because he or

she perceives a short-term possibility of financial gain.

Fredriksen would fall somewhere betweem the two, and I would argue that there is room for a

fourth category consisiting of opportunistic group-creators. My interpretation is that Fredriksens

business empire has gone through a gradual expansion and branched out into different sectors,

primarily due to the following reasons:

1. Presence of lucrative/interesting opportunities (e.g. the acquisition of Marine Harvest)

2. Necessity to diversify income sources (e.g. the acquisition of Aktiv Kapital)

3. Need to conserve wealth/park cash

4. Commercially founded expansion (market power, synergies, economics of scale, etc.)

5. Leveraging group-wide synergies attainable in an integrated industrial conglomerate

(e.g. the establishment of Arcadia Petroleum)

Undoubtedly, the more successful businesses an entrepreneur has developed in the past, the

lower the threshold becomes for the next venture to become successful.

A key reason for this is financing, but the cause is two-fold. First, previous ventures will likely

have generated retained earnings and/or sales proceeds (from an exit) that can be allocated

towards new projects. Secondly, the access and cost of external funding is more beneficial with

entrepreneurs abilities having become a more attractive proposition for investors. Access to

capital is essential in entrepreneurial development, with studies (Birley and Westhead, 1994)

concluding that start-ups with easy funding access are associated with higher relative growth

and rate of success.

Another obvious reason for improved success rate is the ability to transfer competitive

advantages to subsequent business ventures, as well as leveraging on past knowledge and

experience.

Entrepreneurial role:

Entrepreneurship and entrepreneurs have been defined differently through times, the most

pragmatic definition is a person who founds, organizes and operates (a) business(es)

(Wikipedia, 2013). Other definitions extend beyond this boundary and include aspects such as

risk, opportunity, innovation and management styles.

Wickham considers at entrepreneurship through two dimensions - personal and social (2006,

pg. 222). Whereas the personal dimension is largely based on motivation, and will receive more


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attention below, the social factor is a wide-flung one that concerns the wider society.

Entrepreneurs provide the the public with new/cheaper products and services, jobs, increased

competition, tax income and all the trickle-down effects essential to the well-being of the

general economy.

Some commentators suggest that the primary role of an entrepreneur is to maximize return to

the shareholders (Wickham, pg. 11), however the role of an entrepreneur is undisputedly more

diverse because he or she has to consider a wide range of stakeholders.

Most academics clearly distinguish between owners/investors and managers when it comes to

entrepreneurs. As per this distinction, first made by French economist J.B. Say (Wickham, pg.

6), an entrepreneur who owns a substantial part of the business while also undertaking

managerial tasks, is consequently assuming two roles. What complicates the picture in the case

of Fredriksen, is that he frequently entertains more than one of these stakeholder roles. At

times, he can even be his own customer (as is the case with Frontline and Ship Finance).

Accordingly, interests largely seem to be aligned across most roles.

Wickham (2006, pg. 8) suggests that the provision of leaderships and being a good leader is

increasingly recognized as a critical part of enrtrepreneurial success. The role of supporting and

directing is elementary in making all the members of the team pull in the right direction, be

focused and have motivation for the task at hand. Being able to perform all these tasks

effectively requires strong leadership.

For the same reason that it is impractical to precisely define an entrepreneur, it is challenging to

delineate an entrepreneurs role(s). Because of the vibrant environment and dynamic state of

an entrepreneur, he or she often holds and changes between several roles. Fredriksens role

however, is often portrayed as solely being an owner. This is not an entirely correct

characterization, because it undermines the leadership and managing responsibilities that are

assumed through his various directorships.

Personal(ity) characterization:

Surveys suggest that entrepreneurs have special and/or distinctive personalities (Wickham,

2006), and ultimately it is a claim that has been empirically proven. For instance, a

psychologically validated study (King, 1985) showed that there are significant differences in

personal traits between successful entrepreneurs, normal employees and non-successful

entrepreneurs.

Some researchers also note that the background of successful entrepreneurs oftentimes is

characterized by privation and hardship, and that they often are social misfits that are unable to

fit into existing situations.

Several studies (Geroiski, Mata and Portugal, 2010) indicate that start-up ventures backed by

people with university degrees have a higher probability of surviving the first years. Similar

research (Harding, 2007) note that there is a high correlation between education level (human

capital) and venture success rate, and that people with higher degrees actually are twice as

likely to achieve success as non-educated.


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Different researchers (Mueller and Thomas, 2001) have focused on other aspects and

pinpointed three themes that shape creative personalities: cognitive abilities, biographical and

behavioral events. Bessant and Tidd (2011, pg. 157) have also defined three overlapping

themes - personality, thinking process and environmental factors - that together interact to

encourage entrepreneurship and innovation.

Personal characterization traits that are deemed representative of successful entrepreneurs,

include being passionate, competitive, disciplined, committed, creative, focused, exploitive,

hard-working, adaptive, energetic and motivated (Bessant and Tidd, 2011). These qualities are

strikingly similar to the impression I have formed of John Fredriksen through reading relevant

literature and watching interviews. Moreover, Fredriksens many failed attempts and business

struggles at the beginning of his career (appendix A) are solid indications of a high degree of

resilience, commitment, competiveness and drive.

Wickham stresses that entrepreneurs are often driven by a desire for self-sufficiency, prestige

and sense of achievement, even more so than the desire to make money. He asserts that it is

not the final destination of the venture that matters, but rather the journey and the process

itself (2006, pg. 222). This perspective underpins the mentality of a serial entrepreneur and

their impetus to continue to create new businesses.

Motivation is an curious aspect in the discussion of Fredriksen, whom for the last five years has

claimed that he will work until he drops (Lansdale, 2008) and that he no longer is in it for the

money, claiming that he has more than enough already (Koranyi, 2012). Fredriksen has also

directly decreed that he is motivated by the rush of doing business and making deals (Trim,

2011). Accordingly, it is easy to draw the conlusion that Fredriksen is part of a breed of

entrepreneurs that are driven by the sense of achievement. This is defined as a pull factor,

meaning that one becomes an entrepreneur on the virtue of attractiveness, cf. Wickham (2006,

pg. 102).

As far as hard-working, there is little doubt. Fredriksen has been cited saying that his

responsibilities constitutes a 24/7 job and that he is a workaholic whom works seven days a

week (Wright, 2012). An interview confirming this view made by his main business companion,

Tor Olav Trim, stated that He runs himself incredibly hard. He is extremely competitively

minded and never satisfied with his success. I remember that John's wife once said to him: Life

is not a punishment. (Christensen, 2013).

Without elaborate insight and specifics of John Fredriksens childhood, any such profiling is hard

to determine. However knowing that his middle/lower class family came from a rural area

(appendix A), conditions were likely not the greatest. I refrain from doing any psychological

profiling beyond this, but will point to his lack of higher education and humble uprising. With

this backdrop, it is easier to argue that he may hold strong cognitive abilities resulting from

genetics.

Personalities with similar entrepreneurial attributes to Fredriksen (but higher education), include

renowned businessmen such as Elon Musk (founder of PayPal and Tesla Motors), Richard

Branson (founder/owner of the Virgin Group) and Steve Jobs (deceased founder of Pixar Studios

and ex-CEO of Apple). These characters are all more household type names than that of John

Fredriksen, even though Fredriksens personal wealth, economic impact and business empire

exceed them all (on an individual basis).


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The Fredriksen Formula:

This part of the assignment will focus on the characteristics of Fredriksens approach to

founding, investing in, managing and operating companies - in other words, enacting

entrepreneurship. Fredriksens methodology is remarkably distinct, but has its roots in

surprisingly simple and commonsensical thinking. Thus, I have coined the term Fredriksen

Formula in order to illuminate his approach.

Critics might argue that Fredriksen suffers from a case of so-called megalomania, a state that

oftentimes leads to value destruction caused by excessive egos of the respective

owners/managers. However, Fredriksen has repeatedly proven that is not the case, basing

expansive acquisitions and investments on conservative long-term economic research and

sound assumptions.

A PowerPoint presentation highlighting Seadrills success, sourced from Marine Moneys website,

has a slide dubbed Some reflections working with an active owner (Hemen), wherein a series

of arguments are made to illustrate the advantage of being part of the Fredriksen system

(Seadrill, 2010). My own findings are largely similar and includes factors such as focus on

growth, operational efficiency, business development, dividend emphasis, organizational agility,

industrial network and reputation.

The different components of the formula will be discussed, exemplified and analyzed in the light

of the theory in mention. I have chosen to define the factors as listed in the table of contents,

however some of the distinctions may appear to partially overlap eachother. They are not

sorted with any kind of prioritization, but are discussed in a coherent order.

Strategy and takeover targets:

According to Bessant and Tidd (2011, pg. 164-165), the ability to recognize opportunities is a

key task of a successful entrepreneur. New opportunities exist all the time, but do not

necessarily present themselves if they are not actively sought out. Fredriksen has proved highly

effective in spotting these opportunities and acting aptly upon them.

Fredriksens strategy has largely evolved around taking control over and consolidating

companies within dispersed and undermanaged industries. This was the case for Frontline,

Seadrill and Marine Harvest - along with all the affiliated subsidiaries that were absorbed

through the years. These were companies that belonged to industries plagued by dispersed

ownership, oversupply, price war conditions, together with other typical characteristics of

mature markets dynamics.

Not accidentally, another common denominator among these companies is that they all belong

within staple Norwegian industries that John Fredriksen know well and relates to.

Fredriksen (and his team) is actively screening for eligible candidates in sectors that are familiar

to him. When an appropriate target is found, the entry strategy has traditionally been to attain

majority ownership (normally between 15-45%), and leverage the position through installing

board members and dictating management. As such, Fredriksen gains operational control of a

company with a limited investment outlay and is practically able to run it like it was a private

outfit, all while retaining the benefits of a public listing.


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Mergers and acquisitions:

Mergers and acquisitions (M&A) is an aspect of corporate finance and strategy that deals with

purchasing, selling, dividing and combining different companies with the aim to generate

growth.

Having pigeonholed Fredriksen as an opportunist/group-making serial entrepreneur, some

researchers (Wright et al., 1997) further differentiate based on how the group is created.

Businesses are either created through (1) organic growth and gradually expanding sales and

customers, (2) acquisitions, mergers and expansion founded deal making, or (3) a combination

of the two.

Fredriksen has largely favoured deals and M&A for expansion, and accordingly become a driving

force behind the consolidation of several industries. This means he has acquired several smaller

and isolated entities and absorbed them into his own larger companies, and thereby harvesting

the benefits of cross-company synergies, economies of scale and market power.

A key value proposition for Fredriksen has been to acquire small, illiquid public shipowning

companies that have stocks that are trading at levels that value the firm at a discount to net

asset value (NAV), i.e. market value of assets net of debt. This has been a favored method of

adding bolt-on fleet capacity to his existing operating organizations.

A rough mapping of the groups corporate transactions the past 10 years, points to in excess of

20 acquisitions and mergers followed by seven spin-offs/divestitures (Golar LNG Partners,

Seabras, NADL, Seawell and Seadrill Partners, to mention some), with a collective value in the

$25-35 billion range.

Fredriksen has demonstrated a high degree of discipline in regards to the the use of capital at

his disposal. This, and being wary of asset valuation, is the reasons he rarely overpays for an

enterprise or an asset (Trim, 2011). When pursuing a publically listed takeover target,

Fredriksens team seems to have shaped a strategy whereupon a bid is presented during a time

of suppressed stock valuation (either due to company specific factors or the macroeconomic

environment in general). This makes the (comparatively lower) price premium offered appear

more appealing and thus facilitates the acquiring of companies below their fair-value.

Fredriksens approach to M&A has supported the case for numerous acquisitions (and

divestitures) that in hindsight has proved to be incrementally value-adding to the takeover

companies.

Corporate governance:

Corporate governance refers to the system by which corporations are controlled, and specifies

the distribution of rights and responsibilities among stakeholders, such as the board of

directors, managers, shareholders, creditors, auditors and regulators. It covers issues

pertaining to transparency, integrity, accountability and ethical behavior. Although not strictly

mandatory or legislated, there is a common understanding among stakeholders that

corporations should adhere to principles of sound corporate governance (Cadbery Report,

Sarbanes-Oxley, etc.). In Norway, these principles are stipulated in the Norwegian Code of

Practice for Corporate Governance.


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Although Fredriksens companies violate a number of these norms, specifically adhering to the

principles concerning nomination committees for board elections and independent board

members, it is rarely something that receives much attention. The investor community has

likely learned to look past these on-paper flaws, and accept the various firms attention to

equal shareholder treatment compensates for any non-adherence.

Fredriksen showed unprecedented awareness for fair and equal treatment of shareholders when

he, during the early 2000s, was privately offered an off-the-table sum from an institutional

investor for his shares in a rig company. Instead of accepting the premium and doing the

transaction outside the stock exchange, Fredriksen instigated a process in which the company

announced a dispersal sale where all shareholders could participate and sell their shares

(Stavrum, 2006).

This behavior contrasts Fredriksens hardball appearance and many unscrupulous corporate

raids, and instead points to the benefits of being in the same boat as him.

Fredriksens wide-spanning network of companies, assumed to be in the hundreds, is frequently

engaged in transactions with each other. This creates a situation of potential conflicting interest

between the related parties, which is another central part in the code of practice for corporate

governance.

In this regard, Fredriksen has demonstrated a great deal of ethical fortitude and refrained from

doing murky or suspicious deals. Frequently, Fredriksen places orders on new vessels and rigs

through his privately fully-owned holding companies, and then transfer the ownership of said

vessels (the title/contract) at no cost to his publically listed entities. In these events, it is

important to point out that Fredriksen easily - and absolutely legally - could have demanded a

price premium and/or an administration fee for the service. To the best of my knowledge, this

has never been the case.

Lean organizations:

Fredriksen is almost unanimously employed as chairman of the board of directors in his larger

companies. This directorship, coupled with being the largest shareholder, gives him the power

to handpick managers, dictates company strategy and have oversight responsibility.

Fredriksens boardrooms are small and efficient, and consist purely of people with core financial

and/or industrial knowledge. Accordingly, they are not burdened by employee representatives

and people with skewed incentives that are not in line with maximizing shareholder return.

This concept is extended into the corporate organization chart as well, with most organizations

being stripped of heavy corporate overhead, bureaucratic hierarchies and where many

administrative services are outsourced to third parties (especially in the case of ship

management).

Vocal Norwegian capitalist and investor, ystein Stray Spetalen, once exclaimed that

comparing the financial competencies of the boards of Cermaq and Marine Harvest is like

comparing the team lineup of Vlerenga and Barcelona. (Eikeland, 2013). In the same

interview, Spetalen examplifies the advantage by citing Fredriksen's acquisition of Marine

Harvest in 2006. Cermaq had sniffed at the company for a while, but needed to go through a


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several week long decision and approval process before they could act, whereas Fredriksen and

Trim only needed a weekend to decide. Thats the difference. (Eikeland, 2013).

The same capacity was demonstrated during Seadrills 2006 purchase of Smedvig, when

Fredriksen and Trim outsmarted a much bigger American rival through their swiftness. With

Fredriksens vast cash reserve, they can commit to purchase quicker and at different scales

than others, without having to go through "troublesome" board approvals and general meetings

reconciling. In this business you have to work fast, because that is what the competitors does,

said one stock analyst in the wake of the acquisition (Bjrndal, 2006).

Overall, Fredriksens small-sized and flexible organizations, with their centrally controlled

design, allows for quick decision-making and ability to rapidly adjust in a business environment

where first-mover advantages are elementary. This unique organizational structure - rare

amongst public corporations of the same size - is one of the most fundamental reasons for the

groups success through this comparative advantage.

Responsible ownership:

The Fredriksen Group has been effective in communicating its intention as a strategic owner.

The trademark has been the premise of being a responsible and long-term stakeholder with a

strong financial backbone.

A policy of predictability and transparency is unanimously employed throughout the groups

companies, and has become a valued feature of the companies business activities.

These characteristics are highly valued in the financial markets and have forged favorable

relations with banking institutions, investors, creditors, suppliers, as well as customers.

Fredriksen once proclaimed that () were long-term players in the shipping market, of course

I was thinking about reputation (Wright, 2012), when asked why he took personal risk during

the rescue operation in Frontline. This quote highlights Fredriksens perspective and summarizes

the groups stand on enacting ownership.

Bailout capability:

The principle of responsible and active ownership extends into the idea of having the financial

capability - and more importantly, willingness - to bail out and back up ones companies during

financial distress.

This has been proven recurrently, as Fredriksen famously did with both Golden Ocean Group in

2009 and Frontline last year. These companies had been making losses for longer periods, had

negative equity, were on the verge of insolvency and had creditors knocking on the door.

Fredriksen came to the rescue by absorbing liabilities, injecting new capital and renegotiating

chartering terms with related close parties (in this case, Ship Finance International).

In the case of Frontline, Fredriksen spent almost half a billion of his private cash to rescue the

company through a swift restructuring operation. I dont like to be part of a bankruptcy ()

(Wright, 2012), is how Fredriksen explained why he acted like he did.


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This type of mindset is a sought after amenity that is mostly visible among privatedly owned

family companies, but rarely seen in public corporations - even those with renowned dominating

majority shareholders.

Mutual exposure/value maximizing:

With many complimentary roles, it is easy to argue that interests are aligned within the

Fredriksen system. Because of the fact that Fredriksen on average retains ownership of about

34% in his companies (appendix B), there is a prominent source of mutual exposure. This

simple notion means that Fredriksen is the largest beneficiary of good news and performance,

as well as recipient of bad news, and therefore has the incentive to operate his companies as

efficient as possible to maximize shareholders return.

The concept of common exposure is explanatory of the favorable dividend policies, low-cost

overhead, governance and equal shareholder treatment that is employed throughout the group.

This further underpins the incentive to maximize returns for investors (which hence includes

himself), through maximizing efficiency on economic metrics, such as operating margins, tax

rate, working capital and cost of capital.

The investor community seems largely to concur with this notion. Investor and corporate raider

ystein Stray Spetalen having said that Fredriksen appreciate shareholder value. Therein lies

the key (Eikeland, 2013), and fellow shipping entrepreneur Niels Stolt-Nielsen exclaiming,

People are interested in investing with Fredriksen because he has been very fair and very good

to his shareholders (Tradewinds, 2013).

This mentality was affirmed in an interview with Fredriksens right-hand man, Tor Olav Trim,

where he postulated, you have to share with others and treat them fair, () its like investing

with Warren Buffett (Helman, 2012).

The idea that being on the same team as Fredriksen is lucrative, is thus easy to advocate.

Fredriksens standing in the financial markets, strong performance and track-record has

undoubtedly forged favorable relations with banking institutions, investors, creditors, customers

and stakeholders across the board.

Dividend focus:

A hugely favorable characteristic of Fredriksens financial management is the strong focus on

cash dividend distribution to its shareholders. This has largely become a trademark of the

Fredriksen group and has made the companies desirable among institutional investors that are

seeking consistent yield disbursements.

The recipe has been to maintain a high payout-ratio, oftentimes in the 70-90% range of net

income and sometimes even in excess of the free cash-flow. Fredriksens companies, most

notably Seadrill, are able to do this through financing capital expenditures (e.g. investing in new

drilling rigs) with external capital, such as bank loans and bond issues. Therefore, the

companies are able to maintain high dividends, after operating expenses and debt interest are

covered, through constantly re-levering the company while expanding the asset base and (as

such) future income generation capability.


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The chart below illustrates the development - and obvious growth trend - in dividends (dollars

per share) paid out from Seadrill since 2008 (annually and quarterly, respectively).

Dividends provide a strong signaling effect of profitability and financial well-being, while also

commanding the companys commitment to long-term sustainability and growth.

An investigation of Cypriotic business records by Dagens Nringsliv, where three of

Fredriksens holdings companies are domiciled, showed that he collected a total of 47 billion

kroners (~ 8.2bn USD) in dividends from his companies in the course of an eight year period

(Sundnes and Ster, 2012).

Financial leverage:

Access to capital (both in the form of debt and equity) is critical for industrial development and

has been an indispensable factor in the emergence of the modern industrialized society.

Similarly, it is a widely cited founding condition for success in new entrepreneurial ventures,

confirmed by studies which document that external capital access is associated with higher

relative growth (Birley and Westhead, 1994).

The use of debt is critical in capital intensive and asset heavy industries. Fredriksen has a

tendency to leverage the equity of his companies by borrowing approximately 3-4 times more

than that of his peers. Highly leveraged capital structures involve higher risk, but also implicate

a relative increase in the return on equity.

More important than the amount of debt, is the actual cost of the debt. The profitability and

rate of return of any cash-generating project is determined by the cost of capital. A firm whose

cost of capital is relatively lower than its competitors has a comparative advantage.

Due to the groups favourable reputation and strong standing in the capital markets, its

companies are able to attain favorable interest rates and flexible terms/covenants when raising

money in the bond market and through bank funding. The groups massive footprint in the loan

books of banks, is a factor that has further forged the debtor/creditor relationship and their

mutual dependence (i.e. too big to fail).

The demand for Fredriksens debt is easily be exemplified by looking at the latest bond issue by

Seadrill, which generated much interest ascertained by a 40 percent over-subscription and an

interest rate set at a modest ~ 5.50% (6M NIBOR + 3.75%).


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Fredriksen has been favoring the issuance of bonds, occasionally also participating in these

issues or buying in the secondhand market. This offers a new level of flexibility by positioning

Fredriksen on both sides of the table with the influence of being both an equity holder and

creditor. When bonds issued by the groups companies are trading at distressed levels,

Fredriksen has been known to accumulate the debt of his own company at levels far below par

value (Conrad, 2012).

Financial engineering:

A good portion of the groups strong operational performance can likely be ascribed to

disciplined balance sheet management and clever/timely use of financial markets and

instruments.

Fredriksen uses the stock market to raise equity (to pay for operating and capital expenditures)

with frequent intervals. Seadrill is a prime example of this, as it has raised equity five times

since its initial listing. Contrary to the norm, these equity issues were not executed with the

typical price discount and did not lead to noteworthy stock price declines.

When other industrial companies need to raise money, they often have to price the stock issue

at a steep discount to the last quoted stock price in order to attract sufficient investor interest.

This, and the resulting price decline that ensues to reflect the issue price, are factors that

amplify the negative sentiment surrounding stock issues in general. However, this norm appear

somewhat absent from Fredriksens companies, likely because proceeds are allocated to

projects that repeatedly has proved to generate high returns.

Fredriksen is also an avid user of the bond markets for raising capital. Illustrative of this, is

Seadrill and Ship Finance specifically, which together have nine outstanding bonds with a

nominal value of about 3.2 billion dollars (~ 19.2 billion NOK). The majority of these bonds are

traditional unsecured issues, with a couple being callable (may be redeemed before maturity

date) or convertible (may be converted into equity at a set stock price).

Further clever financial engineering include the widespread use of stock options and different

types of financial swaps. Total return swaps (TRS) are an example of this, and is a type of credit

derivative that allows a party to gain exposure to a stock without having to hold the stock on

the balance sheet. This method is popular with Fredriksen and other insiders to attain the

benefits of stock exposure (price increase and dividend) with a minimal cash outlay.

Risk willingness:

Risk is the potential that an activity will lead to a loss or undesirable outcome. Bessant and Tidd

(2011, pg. 185) define risk-taking as a tolerance towards uncertainty and ambiguity. Some

economists and theorists (such as Brinckerhoff, Shapiro and McClelland) suggest that the most

prominent function of the entrepreneur is to accept risk on behalf of others. People are risk

averse by nature and therefore willing to pay somebody to take it away, according to

Wickham (2006, pg. 10). Wickham also distinguish between personal and eceonomic risk

(2006, pg. 11), whereupon the latter is incurred when the entrepreneur makes an investment

and consequently is exposed to economic failure.


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The typical entrepreneur only accept a limited amount of personal financial risk through their

minority (if anything) holdings of equity in the firm they are inviolved in. Typically when the

venture reaches a certain maturity, dedicated professional investors (venture capital funds,

private equity, institutional owners) step in to pursue the owner role. Fredriksen is different in

this regard in that he commits substantial private funds in order to maintain a significant equity

stake (calculated to be 34% on average) throughout the growth cycle of his ventures.

Another indication of the the high degree of risk acceptance within the Fredriksen system, is the

companies aggressive growth strategies and strategy execution. A prime example, is how

Seadrill ordered semi-sub drilling rigs (a ~ $600 million per unit investment) on spec,

meaning that the units are not secured future employment. The same manifestation is now

taking place in Frontline 2012, which has an orderbook of newbuildings estimated by some

analysts to reach 150-200 ships, without any certainty of the state of the markets that these

vessels will be trade in, 2-3 years from now.

The majority of all industrial companies does not undertake hundred million dollar investments

in equipment without the ability to predict and lock in future cashflow with a high level of

certainty. Transocean, the worlds largest owner of drilling rigs and Seadrills number one

competitor, has traditionally always secures long-term contracts with oil companies before

contracting yards to build new rigs.

Admittedly the shipping industry is a high-risk business by nature, yet Fredriksen is known to

raise stakes higher through generous debt use, ordering vessels when nobody else does, sailing

uninsured ships in high-risk environments, operating in highly volatile spot freight markets and

challenging the established market leaders through corporate raids and acquisition wars.

For outsiders it may appear as belligerence, but in reality, it is meticulous risk management.

Fredriksen studies events, weighs the outcomes and makes calculated decisions based on risk

perception. He is also said to push his strategy considerations down to the micro operational

level, by calculating the risks of details such as escalating maintenance costs and crew salaries

(Konrad, 2012).

Fredriksen has been quoted saying that long-term chartering is terribly boring and that its

when you make ten million dollars in a week that shipping becomes fun (Stavrum, 2006).

These statements are testaments to one Fredriksens foremost character trait as an

entrepreneur, his willingness to take on - and even embrace - risk.

A Fredriksen premium?

All of the aforementioned aspects contribute to creating a favorable perception of Fredriksens

companies among shareholders, creditors and customers. This has created a breeding ground

for suggestions whether there is an intrinsic Fredriksen premium in the stock market. In other

words, that companies within the Fredriksen sphere are priced comparatively higher compared

to their peers.

A master thesis worthy of note from the University of Stavanger, examines a similar hypothesis

and concludes that the study has failed to reveal a specific person premium related to John

Fredriksen (Voll and Huseby, 2011). The thesis nonetheless points to significantly higher

historical returns for Frontline, Golden Ocean, Seadrill and Marine Harvest, when comparing


2014

these against five peer companies within each industry in the period 2006-2010. In the rig and

fish-farming sectors, the differences were 46% and 55% higher accumulated returns

respectively, while in dry bulk the return was 27% higher (Voll and Huseby, 2011).

Because the profitability of the mentioned companies hardly justifies the outperformance in

stock price returns, it is therefore pointed to the positive signal effect of paying dividends as

being a facilitator of the deviance.

Conclusion:

It is apparent that it is through the application of the methodology that I have dissected in this

paper, dubbed the Fredriksen Formula, that John Fredriksen has been able to achieve repeated

and duplicable entrepreneurial success.

A key factor in successfully executing business ventures is a smooth transition between the

three stages - opportunity recognition, entrepreneurial commitment and venture credibility -

dubbed critical junctures by Bessant and Tidd (2011, pg. 171). Fredriksen appear to be able

to pool these processes together in an implementation system comprised by trusted associates

and related parties (directors, managers, financers, shipyards, etc.). His experience, aptitude,

insight and ability to synthesize industrial knowledge, has given Fredriksen an image in which

commitment (he is heavily invested) and credibility (he already has a solid track-record) have

become less essential.

Further to this point, it is said that serial entrepreneurs - with their special focus on the start-up

phase of the venture - have unique decision-making abilities in the area of business

development. Wickham (2006, pg. 38) argues that these skills include being able to spot

opportunities, evaluate markets and deal with financial backers. Interestingly, the final slide of

the aforementioned (pg. 13) PowerPoint presentation concludes similarily, with the author

claiming that Seadrills success story is really a story of what owners, management and capital

markets can achieve when working together (Marine Money, 2013).

Exercising entrepreneurship is precisely this - the ability to bring people, money, resources and

ideas together in order to act on business opportunities. Excelling in this capacity, together with

an exceptional risk-willingness, fair-mindedness and a value maximizing mindset, is

undoubtedly the foundation of Fredriksens unprecedented success. Fredriksens billions and the

rapid growth of his fortune stands out as a testament to the success story.

Fredriksens entrepreneurial framework has been the foundation of the creation of globally

recognized investment vehicles within sectors that historically have been shunned by

institutional investors due to the inherent risks and cyclicality.

Shipowning and the maritime industry are highly volatile and cyclical industries, accordingly

fortunes are erased as easily as they are created. Famous Norwegian shipowner Hilmar Reksten

is a good example of this. Reksten had the worlds largest supertanker fleet and ranked among

the worlds richest during the oil tanker boom years of the 1970s. Approximately five years

later, he was personally bankrupt and wound up passing with a net debt load (supposedly) in

excess of 100 million (Tenold, 2002).


2014

The lesson learned from this, is that the capability to conserve wealth is key. This is likely the

main motive behind Fredriksens aggressive dividend disbursements that has facilitated cash

accumulation and diversification into non-shipping sectors, such as fish-farming (Marine

Harvest), debt collection (Aktiv Kapital) and oil trading (Arcadia Petroleum).

This has proved a sound strategy as it has given the group more legs to stand on while certain

sectors experience a downturn. Equally important, it enables the group to store cash that can

be invested at any moment in any cycle and during times of suppressed asset pricing.

Fredriksens continued success going forward, will be persistent ability to create shareholder

value by identifying embedded value and having the resources to quickly extract such value and

put it to work in an existing and well-functioning entrepreneurial framework.

Appendices:

Appendix A: John Fredriksens biography (text)

Appendix B: Company portfolio ownership overview (spreadsheet)

Appendix C: Aggregated ship fleet overview (spreadsheet)


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The Seatankers Group og John Fredriksens bidrag til verdiskaping i norsk konomi; Menon

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Appendix A:

John Fredriksen (68) - with monikers Big John, Big Wolf, Tanker King, Last Viking, et

cetera - was born on the 11th of May 1944 in the small municipality of Eidsvoll by parents

Gunnar Fredriksen and Herdis Johanne rbk. The family moved to the working class area of

Oslo, Vlerenga, when John was three years old and at which point his parents were employed

as a welder and canteen manager, respectively.

Barely 17 years old, John dropped out of high school and started working as courier for the

shipbroking firm, Blehr & Tenvig. Five years later Fredriksen started as a shipbroker for a

different brokerage firm specializing in oil tankers. This marked the start of his shipping career,

where he climbed the ranks to become chief of Wallem & Co in Singapore, until British interests

acquired the firm in 1969. John returned to Oslo starting as a broker again for Anco Tanker

Service, where he became renowned for his efficient work style characterized by fast decisions

and quick gains.

Fredriksen attained a wide-stretching network of industry contacts through his various job

positions. Observing how he was making his shipowning clients rich through lucrative chartering

contracts, he realized there was more money to be made on the other side of the table. As

such, 28 years old, he started his first business venture becoming a shipowner in a partnership

with colleagues. The single-ship outfit, dubbed Dominion Shipping, evolved around a WW2-era

Liberty cargo ship that was contracted to carry cement to Nigeria. However, issues pertaining to

unloading permits and bribes drove the company into bankruptcy shortly after its inception.

On a sidenote, it is quite interesting to note that many other famous shipping entrepreneurs,

such as Aristotle Onassis, Stavros Niarchos and several other Greek shipowners also started

their careers with the plentifully available post-war Liberty ships.


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Fredriksens second entrepreneurial attempt, Scanbulk, was a partnership that operated a

container ship in the Caribbean. This company was also ill-fated due to costly mechanical issues

with the ship. The next business venture was World Shipping, where Fredriksen and his

partners were trading in bunker oil (ship fuel). This outfit was Fredriksens first personal

business success, however the profits were reinvested in shipping stocks just before a major

equity market crash wiped out the gains.

The aforementioned endeavors took place simultaneously with a successful career at Anco

where he was active fixing attractive contracts in the Mediterranean and Persian Gulf during a

politically instable period. Fredriksen was not held back by the several failed business attempts,

and having experienced the advantage of sharing risk during distress, he quite adversely

decided to start up a new outfit entirely by himself. As such, the two Liberia-based companies,

Northern Tankers Inc. and Ocean Tanker Co. Inc., were brought to life in 1971.

As chief of the tank department of Joachim Grieg & Co., Fredriksen witnessed an unprecedented

bull market in the oil tanker freight rates followed by a total collapse sparked by the oil crisis

and embargo of 1973. During this down period, Fredriksen saw an opportunity to establish yet

another company, and thus Northern Shipping was born. This was a brokering firm, in which

Fredriksen leveraged on his Arab contacts (from previous employers) in need of tonnage

through coupling them with Ocean Tanker Co. - Fredriksens own shipowning outfit, which in

turn sub-chartered oil tankers at all-time low rates.

In 1981, the company purchased its own ships, two chemical tankers and an oil tanker, but

struggled to make money in a period of volatile freight rates. Yet another newly formed entity,

Marine Management, acted as operator and manager for the fleet.

Again Fredriksen illustrated his risk willingness and in the eyes of some - cold and

unscrupulous behavior, through operating his ships in politically delicate areas such as

Apartheid South-Africa, Iran during the Iran-Iraq War, Syria during the Yom Kippur War and

Lebanon. Some ascribed Fredriksens involvement with Iran as effectively being the lifeline of

the Ayatollah during the eight-year long war. The involvement in the Arab Gulf was extremely

risky for ships as well as personnel, yet the extreme rate-levels attainable more than

compensated for the risks. Nine of Fredriksens un-insured tankers were hit by Iraqi anti-ship

missiles that in turn killed three and wounded five crewmembers.

During this period, Fredriksen was also framed for embezzling crude oil from his customers

cargo in order to blend with bunker fuel in a highly explosive mix with the purpose to save on

fuel costs. This is a widely disputed chapter in Fredriksens life that got him jailed for a four-

month period, charged with cargo theft and insurance fraud. This in turn led to sour relations

with banks and financers whom forced the sales of vessels and ultimately liquidation of his

company. These series of events left John with great distaste towards Norwegian authorities,

and are attributed to later having shaped decisions such as changing citizenship and flagging

out ships and companies.

However, John Fredriksen once again rose from the ashes, achieving great success through so-

called asset play, whereupon he timed purchases of used vessels and contracting of newbuilds

that was quickly followed by resale. This activity steered Fredriksen into oil drilling rigs and the


2014

oil service industry, which later resulted in the creation of Seadrill.

In 1996, he started purchasing shares in the Swedish-listed shipowner Frontline, which

Fredriksen categorically grew into what became the worlds largest owner of oil tankers through

a series of acquisitions, mergers and divestitures. Three years later, Frontline had 43 tankers

with a combined tonnage of eight million deadweight tons (dwt). After absorbing ICB and

Golden Ocean, Fredriksen was officially the worlds largest tanker owner in 2000.

Fredriksen has been widowed ever since his wife, Inger Katharina Astrup (56), died from cancer

in 2007. They had been together since 1973 and were parents of twin daughters, 28-years old

Cecilie and Kathrine. Fredriksen renounced his Norwegian citizenship in 2006 and has official

address in Cyprus, but maintains real estate in London, Marbella, Cyprus and Nttery.

John Fredriksen has always been publicity shy and secretive, but is irrespectively frequently

portrayed in the media due to his vocal business decisions and wide stretching business empire.

Not seldomly, Fredriksen is portrayed with an undeserved unsympathetic approach. During his

activity in buying up Swedish shipowners during the 1990s, journalists were characterizing him

as a full-fledged gangster with hard hands, philistine way of life and a generally unpleasant

person (SNL, 2013).

More recent press coverage have been increasingly favorable, with Fredriksen being named in

Bloomberg Markets' esteemed 50 Most Influential People and attaining 1st place in shipping

journal TradeWinds Power List 100, that ranks the most significant people in the shipping

industry.


2014

Appendix B:

Company Sector Est. Listing HQ EmployeesMarket cap OwnershipHolding value Holding entity

Seadrill Rig owner 2005 NYSE/OSENorway 6 650 $21 524 450 000 24,00 % $5 165 868 000 Hemen Holdings

Golar LNG Shipowner 2000 NASDAQ Bermuda 536 $3 184 000 000 47,00 % $1 496 480 000 World Shipholding

North Atlantic Drilling Rig owner 2011 OTC Bermuda 1 194 $2 320 000 000 19,50 % $452 400 000 Seadrill

Marine Harvest Fishfarming 2005 OSE Norway 7 025 $4 178 540 000 25,00 % $1 044 635 000 Geveran Trading Co.

Frontline 2012 Shipowner 2012 OTC Bermuda 1 $1 491 000 000 58,00 % $864 780 000 Hemen Holdings

Arcadia Petroleum Oil trading 1988 Private London 100 $1 600 000 000 49,00 % $784 000 000 Farahead Holdings

Ship Finance International Shipowner 2003 NYSE Bermuda 7 $1 582 010 000 41,00 % $648 624 100 Hemen Holdings

TUI AG Travelling 2002 FWB Germany $2 674 242 270 15,00 % $401 136 341 Monteray Enterprises

TUI Travel plc. Travelling 2007 LSE England $5 282 192 000 5,37 % $283 653 710 Monteray Enterprises

Aktiv Kapital Debt collection 1997 Delisted Norway 485 $241 800 470 100,00 % $241 800 470 Geveran Trading Co.

Golar LNG Partners Shipowner 2011 NASDAQ Bermuda 175 $1 838 700 000 31,98 % $588 016 260 Golar LNG

Golden Ocean Group Shipowner 2004 OSE Bermuda 220 $675 117 660 41,00 % $276 798 241 Hemen Holdings

Archer/Seawell Oil service 2008 OSE Houston 8 498 $554 521 865 23,32 % $129 314 499 Seadrill/Hemen Holdings

Northern Offshore Rig owner 2000 OSE Bermuda $291 201 870 34,00 % $99 008 636 Geveran Trading Co.

Deep Sea Supply Shipowner 2005 OSE Cyprus 585 $216 142 320 40,00 % $86 456 928 Hemen Holdings

Frontline Shipowner 1996 NYSE/OSEBermuda 1 897 $164 280 000 35,00 % $57 498 000 Hemen Holdings

Fred Olsen Production Shipowner 1994 OSE Norway $153 101 600 9,80 % $15 003 957 Geveran Trading Co.

Knightsbridge Tankers Shipowner 1996 NASDAQ Bermuda $179 610 000 4,70 % $8 441 670 Frontline

Independent Tankers Corp. Shipowner 2008 OTC Bermuda $1 272 027 39,00 % $496 091 Frontline

Total market capitalization:$48 152 182 082 33,82 %

Total equity wealth: $12 644 411 902

Core companies: $12 286 173 944

Non-core: $358 237 958

Gulfstream G550 $63 500 000

The Old Rectory $245 000 000

stre Movik Farm $11 600 000

Cash deposits $2 950 000 000

Total estimated wealth: $15 914 511 902


2014

Appendix C:


2014

Type Vessel name Shipowner Manager Flag state Year builtHull DWT Capacity Status Order value Shipyard

Suezmax Altair Voyager Independent Tankers Corp. Bahamas 1993 DH 135 829 Sailing Ishibras

Capesize Battersea Knightsbridge Tankers Marshall Islands 2009 DH 170 500 Sailing Daehan

LNGC Bear Golar LNG 2014 95 000 160,000 m3 On order Samsung Heavy Ind.

Capesize Belgravia Knightsbridge Tankers Marshall Islands 2009 DH 170 500 Sailing Daehan

VLCC British Pride Independent Tankers Corp. Isles of Man 2000 DH 307 000 Sailing Samsung Heavy Ind.

VLCC British Progress Independent Tankers Corp. Isles of Man 2000 DH 307 000 Sailing Samsung Heavy Ind.

VLCC British Purpose Independent Tankers Corp. Isles of Man 2000 DH 307 000 Sailing Samsung Heavy Ind.

Panamax Cap Salinas Ship Finance Int. 2013 70 000 4,800 TEU Sailing

Panamax Cap Saray Ship Finance Int. 2013 70 000 4,800 TEU Sailing

Panamax Cap Serrat Ship Finance Int. 2013 70 000 4,800 TEU Sailing

Panamax Cap Sorell Ship Finance Int. 2014 70 000 4,800 TEU On order

LNGC Celsius Golar LNG 2013 95 000 160,000 m3 On order Samsung Heavy Ind.

Capesize Channel Alliance Golden Ocean Group V. Ships Hong Kong 1996 171 978 NKK

Capesize Channel Navigator Golden Ocean Group V. Ships Hong Kong 1997 172 058 NKK

LNGC Clacier Golar LNG 2014 95 000 160,000 m3 On order Samsung Heavy Ind.

ULCV CMA CGM Corte Real Ship Finance Int. U.K. 2010 156 898 13,800 TEU Sailing

ULCV CMA CGM Magellan Ship Finance Int. U.K. 2010 157 254 13,800 TEU Sailing

Suezmax Cygnus Voyager Independent Tankers Corp. Bahamas 1993 DH 156 836 Sailing IHI

VLCC DHT Eagle Bahamas 2002 DH 309 064 Sailing Samsung

FSRU Eskimo Golar LNG 2014 95 000 160,000 m3 On order Samsung Heavy Ind.

Suezmax Everbright Ship Finance Int. Marshall Islands 2010 DH 156 000 Sailing

Suezmax Front Ardenne Ship Finance Int. V.Ships NO Marshall Islands 1997 DH 149 999 Sailing Hyundai

VLCC Front Ariake Ship Finance Int. Thome Isles of Man 2001 DH 298 530 Sailing Hitachi

Suezmax Front Brabant Ship Finance Int. V.Ships NO Liberia 1998 DH 149 999 Sailing Hyundai

VLCC Front Cecilie Frontline 2012 Frontline Mngmt. AS Hong Kong 2010 DH 297 000 Sailing SWS

VLCC Front Century Ship Finance Int. ITM Marshall Islands 1998 DH 311 189 Sailing Hyundai

VLCC Front Champion Ship Finance Int. ITM Bahamas 1998 DH 311 286 Sailing Hyundai

VLCC Front Circassia Ship Finance Int. V.Ships NO Marshall Islands 1999 DH 306 009 Sailing MHI

OBO Front Climber Frontline Singapore 1991 SH 169 178 Sailing

VLCC Front Comanche Ship Finance Int. SeaTeam Isles of Man 1999 DH 300 133 Sailing Hitachi

VLCC Front Commerce Ship Finance Int. ITM Isles of Man 1999 DH 300 144 Sailing Hitachi

VLCC Front Commodore Frontline V.Ships DE Liberia 2000 DH 298 620 Sailing Hitachi

VLCC Front Destiny (J0025) Frontline 2012 2012 DH 320 000 Sailing Jinhaiwan

VLCC Front Dragon (J0026) Frontline 2012 2012 DH 320 000 Sailing Jinhaiwan

VLCC Front Dream (J106) Frontline 2012 2013 DH 320 000 Sailing Jinhaiwan

OBO Front Driver Frontline Marshall Islands 1991 SH 169 177 Decommissioned?

VLCC Front Dynamic (J0027) Frontline 2012 2012 DH 320 000 Sailing Jinhaiwan

VLCC Front Dynasty (J0028) Frontline 2012 2012 DH 320 000 Sailing Jinhaiwan

VLCC Front Eminence Frontline 2012 Frontline Mngmt. AS Marshall Islands 2009 DH 321 300 Sailing Daewoo

VLCC Front Endurance Frontline 2012 Frontline Mngmt. AS Marshall Islands 2009 DH 321 300 Sailing Daewoo

VLCC Front Energy Ship Finance Int. V.Ships NO Cyprus 2004 DH 305 318 Sailing Hyundai

VLCC Front Falcon Ship Finance Int. Thome Bahamas 2002 DH 308 875 Sailing Samsung

VLCC Front Force Ship Finance Int. Thome Cyprus 2004 DH 305 422 Sailing Hyundai

Suezmax Front Glory Ship Finance Int. V.Ships UK Marshall Islands 1995 DH 149 834 Sailing Mitsui

OBO Front Guider Ship Finance Int. Singapore 1991 SH 169 146 Scrapped $9 100 000

VLCC Front Hakata Ship Finance Int. SeaTeam Isles of Man 2002 DH 298 465 Sailing Hitachi

VLCC Front Kathrine Frontline 2012 Frontline Mngmt. AS Marshall Islands 2009 DH 297 000 Sailing SWS

Suezmax Front Melody Frontline V.Ships DE Liberia 2001 DH 149 99

Documents

An Analysis of the ‘Fredriksen Formula’ to Enacting Entrepreneurship (v2)